First Republic Bank regains its independence

Bank of America today, returning to its roots as an independent bank based in San Francisco.

The bank’s managers announced in October that they were planning to buy the company from BofA with financing from private equity firms Colony Capital and General Atlantic. BofA inherited First Republic when it took over Merrill Lynch in January 2009. Merrill had purchased First Republic from its public shareholders for $1.8 billion in September 2007, near the peak of the market.

The completed buyback coincided, coincidentally, with First Republic’s 25th birthday.

The management-led group raised $1.862 billion from investors including the two private equity firms and other institutions, family partnerships, clients and about 120 employees.

“Some of that went to Bank of America, some is for First Republic to have a very strong capital base on which to grow,” said Katherine August-deWilde, First Republic’s president and chief operating officer.

She would not disclose the purchase price nor the new ownership structure, except to say that General Atlantic and Colony each own less than 25 percent. Other institutions investing in the deal include Wellington Management, which was one of the bank’s largest shareholders when it was public, and Sequoia Capital. BofA is retaining about $2 billion in First Republic assets. No debt was used in the deal.

August-deWilde said the bank will consider going public again when market conditions seem right.

During the nearly three years it was owned by BofA and Merrill, First Republic continued to operate as a separate company, with its own pricing, lending policies and brand identity. It still gives out fresh-baked cookies and free umbrellas in its branches.

During this period, its assets and deposits roughly doubled, to $20 billion and $18 billion, respectively. Its expanded its employee base by almost 25 percent to 1,400 and its number of offices by 30 percent to 62. It has 31 branches in the Bay Area.

As a standalone company, First Republic will rank as roughly the nation’s 46th largest bank by deposits or 58th by assets, based on March 31 data from the Federal Deposit Insurance Corp. Among banks headquartered in San Francisco, it will rank fourth after Wells Fargo, Union Bank (owned by Japan’s Mitsubishi UFJ Financial Group) and Bank of the West (owned by France’s BNP Paribas).

Although BofA and Merrill were good parents, the bank’s managers are happy to regain their independence, August-deWilde said. “The nice thing is, decisions are now local again. Management can decide what products we will offer, what we want to do in the community.” The collapse of Merrill and its takeover by BofA caused “a lot of uncertainty,” she added. “Employees are happy all the uncertainty is gone.”

She and Jim Herbert, the bank’s chairman and chief executive officer, will remain in their positions. They have been running the bank since its inception.

The duo are not planning any drastic changes. “You will see more of the same. We are very well capitalized. We have one of the cleanest balance sheets” in the industry, she said. Only 0.2 percent of its assets are non-performing. At the end of the first quarter, the average bank had 3.4 percent of assets classified as non-performing, according to the FDIC.

First Republic avoided big problems by focusing on credit quality. “We made loans to people and businesses who had the cash flow to pay us back. We were never a subprime lender,” she said. About 65 percent of its loans are home loans, primarily jumbo mortgages. It also makes conforming loans that it sells to Fannie Mae and Freddie Mac.

Its business clients include private equity, venture capital and other financial service companies; professional firms such as accountants, lawyers and doctors; and private schools and other nonprofits.

In addition to its traditional banking business, First Republic manages money for wealthy individuals, generally those with $1 million and up. It has about $15 billion in client assets under management and is looking to hire more relationship managers to expand that business.